Output-based aid in water and sanitation: Please identify, review and synthesise the literature on the effectiveness and risks associated with using output-based aid (OBA) in states with weak capacity to incentivise rural water and sanitation services. Specific issues of interest are the extent of adoption, practical challenges for implementation, evidence of sustainable improvements in service delivery, and exit strategies for donors.
Key findings:Output-based aid (OBA) is one of a range of results-based financing approaches which aims to improve development outcomes by linking the disbursement of aid money to achievement of specified outputs by service delivery partners.
There is considerable experience with OBA in the transport sector and in Latin America, but very little experience and evidence in the water and sanitation sector. Most OBA projects in water and sanitation are relatively small pilot projects which are still in their early stages, and the sector makes up only 3% of all World Bank OBA.
The principal challenges facing output-based aid projects in water and sanitation in fragile states are:
Because there is little experience in using OBA in water and sanitation, there is limited evidence of effectiveness in the sector. The World Bank reports that OBA projects in general are more successful than other aid projects, but there is also evidence from the health sector that while OBA can successfully achieve short-term objectives, it has not demonstrated long-term sustainability. Long-term sustainability of OBA in the water and sanitation sector appears doubtful, primarily because user fees appear unlikely to be able to cover operating costs. OBA does appear to be quite effective in targeting aid to the intended beneficiaries.
Full response: http://www.gsdrc.org/docs/open/HD779.pdf